A Ready Reckoner on Drafting the Dispute Resolution Clause

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A Ready Reckoner on Drafting the Dispute Resolution Clause

Abhishek Mathur | October 2014

This article aims at analyzing and then suggesting key pointers to help Legal Counsels/ Contracts professionals (Counsel) draft the Dispute Resolution clause, with a focus on the Information Technology (IT)contracts. The focus of this article is on Indian contracts, from the point of view of service providers. The ambit of the contracts relates to software services and products. An attempt has been made to refer to the transnational aspect of the clause as well and the suggestions have been made based on the the practical business experience of the author. At the outset, it should be made clear that in a contract, the governing laws clause should be kept separate from the dispute resolution clause to maintain contractual certainty. The dispute resolution clause refers to the contractual provisions, which include litigation, arbitration and mediation, by which the parties to the contract intend to resolve the disputes related to their obligations under that contract.

INTRODUCTION AND BASIC RULES
Dispute resolution clauses, as the name suggests only come into play when there is a dispute, which is typically (not exhaustively) a delivery issue faced by the customer or a payments issue faced by a service provider. Counsel should make sure that there is a technical escalation matrix to have a proper evaluation of the gravity of the problem and its subsequent solution. Form the service provider’s perspective business account executives should be identifiedin the contract to ensure regular payments in time from the customer, as well as ensure completion of delivery, from the client’s perspective.
PRACTICAL ASPECTS
Each contract is based on trust and that trusts builds on mutual performance of obligations. The counsel’s task is to ensurethere are proper safeguards to protect the company’s interests and ensure that there exists a fair and legally sound exhaustive process to resolve a dispute. Since lawyers can guarantee neither delivery nor the judgments in case of litigations, the Counsels key task remains that of having a robust clause protecting the interest of its clients. This can be done by maintaining the technical framework (as discussed in next point) as well as by having a legal set of rules clearly identified in the contract.
IMPORTANCE OF CHOOSING A DISPUTE RESOLUTION MECHANISM
The importance of having a workable and detailed dispute resolution mechanism cannot be over emphasized. The mechanism can sometime involve a detailed analysis of having different levels of escalations or pyramids to resolve the dispute. It is completely possible that this structure can be an ideal first step to a resolution but at the same time, it is advisable to have a solutions or a delivery team member to take the ownership of the process before the mechanism is finalized contractually. Often, in the elevated spirit of winning the deal, old or technically irrelevant templates for a dispute resolution might be suggested. The Counsel’s responsibility includes changing them to suit the needs of the contract at hand.
INTRINSIC RELATION TO PAYMENTS AND DELIVERY CLAUSES
The Counsel should be very conversant with the fact that any potential dispute has its genesis in either irregular or no payments from the customer, orerratic or sub-par delivery by the service provider. The clauses of the relevant statements of work should have enough guarding provisions which protect the service provider while providing a clear service level matrix to back upon in case of a dispute. The Counsel should be using business performance as a guide to drafting. No matter how strongly clad the contract is, the Counsel should realize that his main contribution in his limited role as a business enabler is to analyse the relativestrengths and weaknesses of the business he is serving. More elaborately speaking, the Counsel should draft the clauses depending on the service provider’s proven track record in a particular field.
CHOICE BETWEEN ARBITRATION AND LITIGATION
This is a huge topic in itself and has many aspects to it, but for the purpose of this article and as a general rule, litigation can be preferred in case of jurisdictions with a good record of speedy and accurate trials. At the same time, in places without a common law background, or a rather archaic point of view for information technology field, even though the judicial system looks preferable over arbitration, the Counsel should watch out for pitfalls. In jurisdictions wherein there is a proven track record of inordinate delays and a rather poorly staffed judiciary, arbitration can be an agreeable option. Apart from the municipal laws, there are international arbitration institutions which are capable of delivering technically sound judgments, even though costs can be a deterrent sometimes. In a nutshell, speed of justice delivered, flexibility, enforceability, image & neutrality, certainty, confidentiality and costs can be some useful guidelines to decide the forum to resolve disputes. The aim should be to have a finality of the clause, whoever waythe parties decide to go.
INTERNATIONAL CONTRACTS

While drafting it should be kept in mind that even though the customer might be suggesting a governing law and dispute resolution venue to be their preferred jurisdiction, the service provider should not shy away from placing their point of view across. The very fact that the service provider does not have significant legal presence in the customer’s place of business should be a strong reason to avoid a completely unknown set of laws coming into play. Seeing the practical angle of the customer not accepting it, a neutral jurisdiction works for both parties can be accepted. It should be borne in mind that even the best clauses and fairest judgments cannot be enforced in an incapable jurisdiction.

The fast paced scenario in which information technology contracts are being executed usually does not allow the inhouse counsels or the corporate legal advisers the luxury of time which a traditional lawyer might have had in the past. It is easy to miss underlining the importance of the Dispute resolution clause and as a result, the drafting quality may suffer. The legal tenet of “Draft in haste and Litigate at leisure” should be kept in mind in case of doubt.

About Author

Abhishek Mathur

Based in the New Delhi office, Abhishek Mathur is a Junior Associate in the Litigation Team of Dhir & Dhir Associates. He has completed his LLB from Symbiosis International University in the year 2019 and holds a diploma in Competition Law from National Law University, Delhi. His area of interest and expertise lie in Banking and Insolvency Laws, Intellectual Property Law and Competition Law. He regularly represents clients in an array of matters before various Courts and Tribunals including DRT, DRAT, NCLT, NCLAT, High Courts and the Supreme Court.